Fundamentally-Weighted Index Definition
Learn the definition of fundamentally-weighted index and other ETF terminology from the etf.com glossary.
Learn more about Fundamentally-Weighted Index
In the context of ETFs, a fundamentally-weighted index is an index in which the constituent securities are weighted based on their fundamental characteristics rather than their market capitalization. This means that securities with stronger financial performance, such as higher earnings, book value, or sales, will have a greater impact on the index's performance than securities with weaker fundamentals. Fundamentally-weighted indexes are often considered to be more reflective of the intrinsic value of companies than market-cap-weighted indexes, which are based solely on the size of companies. However, fundamentally-weighted indexes can also be more volatile than market-cap-weighted indexes, as they are more sensitive to changes in the financial performance of individual companies.
